Spirit Airlines Had A Long Runway For Takeoff

Cup bases can last from seven to as long as 65 weeks. In other words, keep an eye out for long cup patterns to emerge.

That said, most successful cup patterns last three to four months, with 13 weeks being a common length — perhaps because it's the time between quarterly earnings reports.

Longer bases are best analyzed on a weekly chart for the simple reason that over a longer period, it's easier to spot accumulation or distribution by the week rather than the day.

Many bases are built during general market corrections. So if a correction lasts eight months, you can expect long cups to form.

Leading stocks also tend to correct 1-1/2 to 2-1/2 times the amount of the general market indexes.

A good example of a long cup with handle is Spirit Airlines (SAVE) from May 2012 to March 2013. The discount airline, which serves the Caribbean and points in Latin America and the U.S., was going through an earnings slowdown. Yet earnings growth was picking up again by April 2013, which is what some institutions may have been anticipating as they accumulated the stock.

The base lasted 45 weeks and corrected 37%, a bit deeper than ideal. Yet check out the left side of the base. On the way down were 11 up weeks. Each one closed near the top of the weekly range 1. That's a powerful endorsement. Institutional investors were accumulating the stock even as it was going down.

Another positive element in the base is the way it tightened up near the bottom 2 and made its way up the right side. The weekly spreads became narrower and the stock's movements more restrained and orderly.

That shows the institutional buyers are in charge. The sellers are gone and the buyers can quietly accumulate shares.

Viewed on a weekly chart, Spirit fashioned a one-week handle.

The stock began a breakout March 4, 2013. Volume was only 4% above average that day, well below the at least 40% above average we like to see.

But the volume built over the next few days. The weekly chart showed a powerful 15% gain in above-average volume.

In the first three weeks, the stock rose 25%. A stock that rises from a base at least 20% in three weeks tends to have the best chances of being a superb winner. Spirit ran up 70% by July 2013 before its next correction.

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